"independent testing for compliance conducted by either bank personnel or an outside party" is one required element of a bank's anti money laundering program" as noted by the fdic.

how flexible are the regulators in assessing the appropriateness of "bank personnel" performing this role. as the "cae", our internal auditors have always done this with no objections from the regulators.

in speaking with an associate at a community bank in new england, he tells me they have been cited by the regulators because their compliance officer performed such testing? why would this be an "independence" problem whereas internal audit is not. thanks.

It would depend on the involvement of the Compliance Officer in day-to-day BSA Operations or in its oversight. You can't be independant if you are actively involved in the process.

thanks. agree, but clearly, in most cases, an internal audit function is considered independent. correct?

In most cases an internal audit function OUGHT to be independent. However, such is not always the case. In some smaller banks in particular, the internal audit of BSA might be done by someone involved in the process. That's not acceptable.